I just finished preliminary screening of some great covered call opportunities for next weeks earnings. WB - Weibo Corp FL - Foot Locker, Inc. KSS - Kohl's Corporation GPS - Gap Inc VIPS - Vipshop Holdings HRL - Hormel Foods Corp HPE - ewlett Packard Enterprise Co
These companies have earnings reports coming out next week. The premiums on near the money options are at 2% or greater. WB and FL have the highest premiums percentage at 5% and 8%. This is a good opportunity to make a low risk play with decent upside. The strategy I am executing is to purchase shares in lots of 100 and sell covered calls to collect the premiums at the start of the week (or the Friday before the weekend). An example: Buy 200 shares of FL at $23.50 for a total of $4700 Sell weekly calls at $24 for about $1.50 each, net credit of $300. Possible results: Week ends at $26 (+10.6%) = $5100 ($24*200 + $300 from calls) (+8.5%) : Delta: -2.1% Week ends at $25 (+6.4%) = $5100 ($24*200 + $300 from calls) (+8.5%) : Delta: +2.1% Week ends at $24 (+2.1%) = $5100 ($24*200 + $300 from calls) (+8.5%) : Delta: +6.4% Week ends at $23 (-2.1%) = $4900 ($23*200 + $300 from calls) (+4.2%) : Delta: +6.4% Week ends at $22 (-6.4%) = $4700 ($22*200 + $300 from calls) (+0%) : Delta: +6.4% Week ends at $21 (-10.6%) = $4500 ($21*200 + $300 from calls) (-4.3%) : Delta: +6.3%
Note: When the Call is not executed, you may choose to continue to hold the stock and wait for it to rise again.
As you can see, with such a high premium, the upside for covered calls is quite high and the downside is partially mitigated. If you are expecting a drop you can sell deeper in the money calls, and if you think it will pop, you can sell higher out of the money calls. >What about capped upside? Do you expect the stock to move +10% in a week? Even if it does, you are still guaranteed profits. >What about unlimited downside? This is why you buy stable companies, its just as unreasonable to expect the company to move -10%
